Escorts rallies 5% on strong operational performance in Q4

Shares of Escorts moved higher by 5 per cent to Rs 830 on the BSE in an otherwise weak market on Friday after the company delivered strong operating performance in January-March quarter (Q4FY20) amid a tough environment.

The company’s earnings before interest, taxes, depreciation, and amortisation (Ebitda) grew 2.5 per cent year-on-year (YoY) to Rs 194 crore, while Ebitda margin, adjusted for one-offs, expanded 50bps YoY to 12.1 per cent against analyst estimate of around 10.5 per cent during the quarter. Revenue fell 15 per cent YoY to Rs 1,380 crore in Q4YF20, due to poor performance by construction equipment segment.

The management said the good harvest, increased procurement by respective governments and their focussed support to farming & prediction of good monsoon will enable quick revival across farm ecosystem. The management is optimistic for the coming quarters and hope that the collective efforts will help in containing the crisis and the global economy will be on its strength soon again.

Overall rural sentiments are positive because of a record output of Rabi crop and a favourable initial prediction of this year monsoon. Going forward, the management expects tractor industry to recoup faster as compared to a lot of other sectors.

Although it is a bit early to say, we are already witnessing pent-up demand coming from the lockdown period. We expect that this pent-up demand shall help industry to show a growth in June-October 2020 period, it added.

A strong Rabi output and expectation of normal monsoon are key positives for rural sentiment. Improving cost structure in the construction equipment business, better traction in the high-margin railway business, with its rising order book (about Rs 500 crore as of March 2020 that will be executed in the next 12-15 months) are likely to support its margin, analysts at Dolat Capital said in a result update.

“Despite temporary blip on industry volume momentum on account of Covid-19, we think medium-term industry volume driver is intact and we expect new industry peak in FY22/FY23 (+15-20 per cent from earlier peak of 700K). We also believe tractor market decline will be least in FY21e among all automotive segment players in India,” analysts at Antique Stock Broking said in results review.

At 01:04 pm, Escorts was trading 4 per cent higher at Rs 826 on the BSE, as compared to 0.72 per cent decline in the S&P BSE Sensex. A combined 5.3 million equity shares changed hands on the counter on the NSE and BSE so far.